Lat1 Research Essay

3182 words - 13 pages

What happened on December 23, 1913 at Jekyll Island that has completely changed the landscape of the monetary system in United States? Since its inception in 1913, the Federal Reserve has been the Central Bank of the United States of America. There are many questions about the Federal Reserve:; Its legality, its morality and the intentions of the founders and of those who currently are in authority. Was the Federal Reserve necessary when it was started? Is it necessary now? There is a growing group of people who believe that the role the Fed has taken violates everything our country was founded upon- being a part of the government that is by the people and for the people and that it has not ...view middle of the document...

P. Morgan met with Congressional leaders to create the Federal Reserve Charter. It was supposed to help the United States economy and monetary system in many different ways. The Federal Reserve was founded
to organize, standardize and stabilize the monetary system in the United States. It had to set up a method that could create “liquidity in money supply – in other words, make sure banks could honor withdrawals for customers. It also needed to come up with a way to create an ‘elastic currency’ meaning it had to control inflation by making sure prices didn’t climb too quickly and it needed a way of increasing or decreasing the country’s supply of currency in order to prevent inflation and recession” (Obringer, 2).
In other words, the Fed was started, in part, to keep the economy in a controlled pendulum, not swinging too far up or down and to keep inflation in check by manipulating interest rates and the money supply. Knowing the public might not accept such a drastic change that was clearly a move to be more like European nations, the founders of the Fed tried to be a little different. A major reason the Fed was accepted by the people as presented to them, was that it was set up in a way that was different than the European Central banks by having multiple “decentralized” member banks, rather than just one like the central banks in Europe. The member banks are each governed by local bankers in the community the member bank operates in. While it is still one central bank, givingen the appearance of a democratic institution by placing the member banks in different cities around the US. These banks are all charged with voicing their opinions on what Fed policy should be and how best to accomplish the goal of maintaining a balanced economy and eliminating erratic business cycles.
Has it accomplished that goal? History shows that the two worst economic times in this countries history have come during the time the Fed was in operation. “After the Fed was founded during the 1920’s, the Establishment economists and bankers proclaimed that the American economy was now in a marvelous New Era, an era in which the Fed, employing its modern scientific tools, would stabilize the monetary system and eliminate any future business cycles. The result: …ever since the Fed was visited upon us in 1914 , our inflations have been more intense and our depressions far deeper than ever before”. (Rothbard, 80).
The latest financial disaster was, arguably, a direct result of Fed actions. The financial crash of 2007 happened mainly because of the low rate policy that Alan Greenspan, then Federal Reserve Chairman, used to try and pull the economy out of a recession that started in 2001. The low rates caused a mass amount of new loans to be issued and gave lenders a renewed taste for how much money could be made with the sheer volume of home loans being made. With home prices being artificially inflated by low interest rates and a lowered fractional reserve for...

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